Sheng Siong Group
Price targets:
PhillipCapital ‘buy’ $1.80
DBS Group Research ‘hold $1.62
CGS-CIMB Research ‘add’ $1.82
RHB Singapore ‘buy’ $1.99
Resilient earnings
Analysts at PhillipCapital, DBS Group Research and CGS-CIMB Research have trimmed their respective target prices for Sheng Siong Group OV8 , even though they remain upbeat about the business resilience of the supermarket chain.
On Oct 26, Sheng Siong Group, which runs 69 supermarkets here, reported earnings of $35 million for its 3QFY2023 ended September, up 6% y-o-y. Revenue in the same period was up 4% y-o-y to $346 million, with growth coming from higher same-store sales and contributions from new outlets.
In their Oct 27 note, CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan point out that Sheng Siong managed to increase its gross profit margin by 0.9 percentage points y-o-y to 30.3%, which they believe will help ease concerns over potential margin pressure due to industry competition.
They continue to like this stock for its defensive nature, especially valued amid high inflation and a slower economy.
“We deemed Sheng Siong’s current valuation attractive, as it is currently trading close to its historical trough valuation of 15.3x forward earnings,” write Ong and Tan, who have an “add” call on the counter.
However, they have trimmed their target price from $1.88 to $1.82 to take into account slower new stores opening. Similarly, Chee Zheng Feng and Andy Sim of DBS have maintained their “hold” call but with a reduced target price of $1.62 from $1.76.
“We continue to like the company’s operational excellence and see cost improvement tailwinds. However, we do not foresee any material near-term rerating catalyst,” state the analysts in their Oct 30 note.
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“Given the higher-for-longer base case scenario, we applied a lower valuation peg of 17x forward P/E ratio, four-year average forward P/E, on revised FY2024 earnings. Accordingly, our target price is lowered from $1.76 to $1.62.”
Similarly, in his Oct 30 report, Paul Chew of PhillipCapital has pencilled in higher earnings growth for the coming FY2024, thanks to new stores opening and higher interest income, while utility costs will dip.
While he maintains his “buy” call on the stock, Chew has cut his target price to $1.80 from $1.98, as Sheng Siong’s historical valuations have been dipping downward from 22x earnings to 20x. “Post-pandemic, there has been a de-rating of growth expectations,” says Chew.
On the other hand, Alfie Yeo of RHB Research, citing a positive outlook for this stock, has raised his target price from $1.95 to $1.99. In his Oct 27 report, Yeo points out that Sheng Siong has continued to show resilience during the latest quarter, posting decent revenue and earnings growth despite last year’s high earnings base due to Covid-19 restrictions.
“This was largely due to a firm consumption environment and strong contribution from new stores. Its outlook remains positive,” says Yeo.
Yeo is upbeat that Sheng Siong’s bid to open new outlets will help drive earnings. Year to date, out of the five leases the company has bid for, it has won one and is waiting for the results of another three bids.
“Growth opportunities abound as the HDB has five more supermarkets up for tender in the next six months,” points out Yeo, adding that additional spending vouchers of some $300 per household from the government to be given for 2024 will help lift sales. Besides Singapore, Yeo sees Sheng Siong’s expansion in China as another plus.
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“We left our FY2024–FY2025 earnings forecasts unchanged, as the outlook remains positive,” says Yeo, whose new target price is based on a revised valuation methodology of 21x FY2024 earnings from 21x blended FY2023 and FY2024 earnings. Yeo also expects the stock to be supported by its yield of around 5%. — The Edge Singapore
iFast Corp
Price targets:
DBS Group Research ‘hold’ $6.95
Citi Research ‘sell’ $3.70
UOB Kay Hian ‘hold’ $6.56
CGS-CIMB Research ‘hold’ $5.90
Hong Kong contribution
Given its improving operating metrics, analysts are generally positive following iFast Corp’s 3QFY2023 ended September earnings. On Oct 25, iFast reported earnings of $8.52 million, up 308.4% y-o-y.
Revenue in the same period was up 23.8% y-o-y to $66.22 million, with key contributions from its e-Pension project in Hong Kong. iFast has declared an interim dividend of 1.3 cents per share, held steady from this time last year.
On the back of a strong 3QFY2023, Ling Lee Keng of DBS Group Research projects iFast to report a better 4QFY2023, thanks to a stronger contribution from Hong Kong given a full quarter of operations, versus just one quarter in 3Q.
“Costs could remain high, but a higher revenue contribution should accompany this,” writes Ling in her Oct 27 report.
From an earlier call of “fully valued”, Ling has upgraded her call to “hold”, along with a higher target price of $6.95, from just $3.92 previously.
Similarly, Andrea Choong of CGS-CIMB Research has raised her target price to $5.90 from $4.90, thanks to Hong Kong, while keeping her “hold” call.
“The commencement of ePension contributions was the key positive feature of 3QFY2023 earnings, and effectively kick-starts seven years of project fees,” writes Choong in her Oct 27 note, adding that Hong Kong is on track to generate $17 million in profit before tax for the current FY2023.
Assets under administration (AUA) surged to a record of more than $19 billion as of Sept 30. In the most recent 3QFY2023, iFast generated net inflows of $751 million, an improvement over $559 million in the preceding 2QFY2023 and $329 million in 1QFY2023.
UOB Kay Hian’s Heidi Mo and John Cheong have trimmed their FY2023 earnings projection to account for lower-than-expected contributions from Hong Kong.
However, they have increased their target price for the counter, which they rate “hold”, from $4.81 to $6.56, as they now use a new valuation multiple of 23x FY2025, which is pegged to 1 s.d. (standard deviation) below iFast’s historical mean, down from 0.5 s.d., to reflect a more reasonable valuation and steady earnings state from Hong Kong.
Citi Research has a long-held contrarian view on this stock and remains cautious about iFast.
“We highlight that more than half of earnings is driven by Hong Kong project fees and underlying core business remains soft,” states analyst Tan Yong Hong, who has kept his “sell” call and $3.70 target price. — The Edge Singapore
Wilmar International
Price targets:
DBS Group Research ‘buy’ $4.30
CGS-CIMB Research ‘add’ $4.05
Mending profitability
Analysts at DBS Group Research and CGS-CIMB Research are keeping their “buy” and “add” calls on Wilmar International F34 on the back of mending profitability following the company’s 3QFY2023 ended September results release.
CGS-CIMB analysts Tay Wee Kuang and Lim Siew Khee note that Wilmar’s 3QFY2023 ebitda of US$1 billion ($1.37 billion) brought 9MFY2023 ebitda to US$2.7 billion, in line at 78.9% of their FY2023 estimates while 9MFY2023 core net profit of US$900.9 million was largely in line at 73.1% of the analysts’ FY2023 estimates.
The analysts are “heartened” by the q-o-q growth in sales volume across all of Wilmar’s sub-segments during the quarter. “Notably, the 35.3% q-o-q growth in sales volume of its consumer products sub-segment underpinned the 12.5% q-o-q growth of its food products segment in 3QFY2023 — highlighting an improvement in consumer sentiment in China, as Wilmar’s medium pack and bulk sub-segments sales volumes continued to reach record levels since FY2019.
“We note, however, that Wilmar tends to experience a seasonally stronger third quarter in terms of sales volume, likely ahead of the festive season in China heading into the fourth quarter,” Tay and Lim add.
Meanwhile, DBS analyst William Simadiputra believes Wilmar’s FY2024 earnings could recover from the low level expected this year, mainly on improving sales volume in tropical oil and food products.
“We see room for an earnings improvement in 2024 despite acknowledging that the q-o-q earnings expansion in 3QFY2023 is insufficient to achieve our prior earnings forecast. Sales volumes in the food products division are returning, which is crucial since food products have a higher gross profit margin than other segments and more stable profitability than tropical oils and the crushing business,” he adds.
Simadiputra has also lowered his target price to $4.30 from $5.30, based on a 14x P/E multiple to blend FY2023 and FY2024 earnings. “Our P/E multiple assumption is fair, as it is only slightly higher than its plantation universe peers’ FY2024 average P/E of 10x.
“Wilmar should be trading above its upstream palm oil peers due to its comprehensive refining facilities in Indonesia and overseas,” he adds.
CGS-CIMB’s Tay and Lim are keeping their target price at $4.05, maintaining their earnings forecast as they believe Wilmar would continue to benefit from the consumption recovery in China to support their implied 4QFY2023 core net profit of US$330 million. — Khairani Afifi Noordin
CSE Global
Price target:
Maybank Securities ‘buy’ 65 cents
Growing ‘electrification’ trend
Jarick Seet of Maybank Securities has maintained his “buy” call and 65 cents price target on CSE Global 544 after the engineering firm won new orders worth some US$110.2 million ($151 million). As at Sept 30, CSE Global’s order book reached an all-time high of $638 million.
According to CSE Global, the two contracts are for the design and manufacturing of power distribution centres slated for execution from 2024 to 2025.
Seet believes that CSE Global, led by group managing director Lim Boon Kheng, is well poised to capture the growing trend of “electrification” due to its expertise in electrification solutions which will be key to securing US infrastructure projects and breaking into segments like data, and battery storage centres.
“We expect the US contribution to grow significantly in the next two to three years by 100% to 200%,” writes Seet in his Oct 31 note.
Seet believes that the current drop in CSE Global’s share price is a “buying opportunity” and that this is a stock that offers a “unique opportunity” to ride the upcycle in attractive growth areas, accompanied by a sustainable 7% dividend yield.
Seet’s target price of 65 cents for CSE Global, his top pick in the small and mid-cap space, is based on 15.5x FY24E P/E. — The Edge Singapore
OUE Commercial REIT
Price target:
DBS Group Research ‘buy’ 35 cents
Strong recovery
DBS Group Research has upgraded OUE LJ3 Commercial REIT TS0U (OUE C-REIT) to “buy” with a target price of 35 cents after the REIT reported a strong sequential performance for the 3QFY2023 ended Sept 30.
On Oct 30, the REIT reported 3QFY2023 revenue of $75.8 million, 27.5% higher y-o-y. Net property income (NPI) for the quarter rose by 29.8% y-o-y to $62.7 million.
Its Singapore office segment recorded a positive rental reversion of 18.4% in 3QFY2023 while its hospitality segment revenue rose by 67.6% y-o-y and 73.2% y-o-y to $28.3 million and $27 million respectively.
Revenue per available room (RevPAR) in the REIT’s hospitality segment also rose 12.8% y-o-y to $295.
In retail, the REIT’s committed occupancy at Mandarin Gallery reached 98.7% as at Sept 30. Its retail portfolio also recorded a high rental reversion of 31.1% on the back of a recovery in tourist arrivals and improving retail sales.
In their Oct 31 report, analysts Rachel Tan and Derek Tan stood positive on the REIT’s outlook, citing its record-high RevPAR, strong positive reversions from its Singapore commercial portfolio, as well as investment-grade rating and lower interest costs.
On Oct 30, the REIT manager announced that S&P Global Ratings assigned a “BBB–“ rating with a stable outlook to the REIT as well as all of its outstanding notes, including the $150 million worth of 4.2% notes that are due in 2027.
The rating means the REIT’s $150 million notes will see a 25 basis point reduction in interest rates.
“Given its strong performance, OUE C-REIT is likely to retain its remaining $5 million in capital distributions for the future,” say the analysts.
The analysts also like the REIT’s stable Singapore assets with growth from its hospitality portfolio.
The hospitality sector, in particular, continued to deliver strong growth, despite Hilton Singapore Orchard operating at its full capacity. This led to a recovery that surpassed the analysts’ expectations, they write.
The REIT’s asset enhancement initiative (AEI) at Crown Plaza Changi Airport, which is slated to be completed by December 2023, is expected to attract more travellers from 2024.
“Our discounted cash flow (DCF)-based target price of 35 cents is based on a risk-free rate of 3.5% and a beta of 0.95. This implies a target yield of 6% and 0.6x P/NAV,” the analysts write.
Key risks include a potential macroeconomic downturn, leading to a potential recession. The potential sponsor pledging of OUE C-REIT’s units is another downside with the analysts noting that the recent pledging of First REIT’s shares by its sponsor may lead to similar action being taken by the sponsor towards OUE C-REIT.
Finally, a potential medium-term dilution is another risk. At present, OUE C-REIT has $220 million in outstanding convertible perpetual preferred units (CPPUs). However, the analysts see that the conversion risk is low, although any potential redemption may require equity. — Felicia Tan
CapitaLand Ascendas REIT
Price targets:
Maybank Securities ‘buy’ $2.65
CGS-CIMB Research ‘add’ $3.06
Citi Research ‘buy’ $3.02
Safe harbour
Analysts are positive about CapitaLand Ascendas REIT A17U (CLAR) latest results for the 3QFY2023 ended Sept 30. The REIT’s portfolio occupancy stood at 94.5% as of Sept 30, with a positive portfolio rental reversion of 10.2%. The REIT’s leverage stood at 37.2% for the period.
Maybank Securities’ Krishna Guha was the most upbeat as he upgraded his call to “buy” from “hold”. In his Oct 30 report, Guha sees CLAR as a “safe harbour” as its 3QFY2023 updates reveal steady operations, positive reversions and higher portfolio occupancy, albeit mitigated by higher gearing and a lower interest coverage ratio (ICR).
“While our concerns about business park supply and operating performance of overseas assets remain, we upgrade CLAR to ‘buy’ from ‘hold’ for its defensive characteristics, exposure to hi-value, knowledge industries and reasonable valuation versus [its] peers and history,” he writes. “CLAR should benefit from any pick-up in local high-end manufacturing, research and development or R&D.”
After factoring in better-than-expected reversions, the analyst has raised his distribution per unit (DPU) estimates by 1%. His target price remains unchanged at $2.65 as he has applied a higher discount rate. His target price is also based on a forwarded valuation base of FY2024.
CGS-CIMB Research’s Lock Mun Yee and Natalie Ong have kept their “add” call with an unchanged target price of $3.06 due to the REIT’s resilient operations.
“We continue to like CLAR for its diversified and resilient portfolio and healthy balance sheet,” they write, noting that the progressive completion of CLAR’s ongoing asset enhancement initiatives (AEI) from 4QFY2023 to 1QFY2026 should drive the REIT’s portfolio returns in the medium-term. Currently, CLAR has $600 million worth of ongoing AEIs, 91% of which are in Singapore.
To Lock and Ong, potential catalysts include faster-than-expected global recovery and accretive new acquisitions. Downside risks include a protracted economic downturn that could adversely impact its ability to price rents for positive reversions.
Citi Research’s Brandon Lee has also kept his “buy” call on CLAR with an unchanged target price of $3.02. “CLAR’s 3QFY2023 business updates continued to paint a healthy operational landscape of Singapore’s industrial sector (62% of assets under management or AUM), evidenced by improved occupancy and healthy rent reversions (albeit slowing q-o-q),” he writes.
“We expect the positive trend to persist over the next six to 12 months given high pre-commitment of 85/72% for upcoming supply in FY2023/FY2024,” he adds.
In his report on Oct 27, Lee also noted that CLAR outperformed the Singapore REIT (S-REIT) sector, with its 8% decline ytd compared to the sector’s 15% decline over the same period. His estimates have valued CLAR’s P/B at 1.08x with FY2023 and FY2024 yields of 6.2% and 6.4% respectively. — Felicia Tan
CapitaLand Ascott Trust
Price targets:
DBS Group Research ‘buy’ $1.20
Maybank Securities ‘buy’ $1
UOB Kay Hian ‘buy’ $1.25
Slower growth ahead
Analysts at DBS Group Research, Maybank Securities and UOB Kay Hian keep “buy” on CapitaLand Ascott Trust HMN (CLAS) following its 3QFY2023 ended September business update.
Maybank analyst Krishna Guha, who has previously lowered his target price to $1 from $1.20, notes that CLAS’s update indicates continued mid-teens gross profit and revenue per available unit (RevPAU) growth. However, the high base of last year’s second half and receding reopening tailwinds are likely to result in slower growth for subsequent quarters, Guha adds.
In its 3QFY2023, CLAS’s portfolio RevPAU recovered about 102% of 2019 levels — the first quarter to surpass 2019. DBS analysts Geraldine Wong and Derek Tan point out that the trust’s operational performance going forward will be on the back of improvements in occupancy back to pre-pandemic levels at around 85%.
On the back of the Singapore portfolio performance, which has taken the lead across CLAS’s markets, DBS continues to see further income upside from Ascott lease conversion and stabilisation of revenue per available room (RevPAR), supported by higher rates at the newly rebranded The Robertson House hotel. The analysts add that other markets will continue to see broad-based recovery but at a more modest pace. DBS has lowered their target price to $1.20.
CLAS has also renewed seven master leases in France with a rental upside of about 28% for FY2024 under the new lease rental structure, indexed to the French commercial lease index. The renewed master lease contracts on higher terms will support valuations for FY2023 year-end valuations, DBS notes.
UOBKH analyst Jonathan Koh highlights that CLAS’s The Cavendish will be renovated and rebranded under The Crest Collection, a luxury brand managed by Ascott. Given The Cavendish’s positioning as an entry-level luxury hotel, its average daily rate is expected to increase from GBP250 to GBP500 ($416 to $831). The property’s valuation is expected to increase by GBP101 million to GBP316 million after renovation and stabilisation in 2027.
Koh has lowered his target price to $1.25 from $1.27 previously.
Despite the challenging operating environment, CLAS’s revenue managed to outpace their increase in operating and financing costs, Moomoo Singapore equity dealer Too Juncheong notes. With a higher-for-longer interest rate environment, investors looking for opportunities with CLAS will have to dive deeper and consider the key lending rates of each country in operation and the foreign exchange fluctuations to the Singapore dollar.
“At the current dividend yield of over 6%, investors with higher risk appetite compared to safer investment products like Singapore Savings Bonds and Treasury Bills may look to accumulate positions in CLAS,” he adds. — Khairani Afifi Noordin
